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The role of ODA in financing the future

Images Blog The Role Of Oda In Financing The Future

On 17 and 18 March, CABRI travelled to Accra, Ghana, to discuss the post-2015 financing challenges and innovative ideas for financing global development. The conference included delegates from across donor organisations, multilateral development banks, governments, academia, and other development partners.

One of the key areas of discussion during the event was the importance of the use of country systems (UCS) by governments and donors in publishing and reporting on what is funded. CABRI has been working on this issue since it was first raised in the Paris Declaration on Aid Effectiveness in 2005. The Paris Declaration committed donors to using country systems and procedures to the maximum extent possible, while partner countries undertook to make the necessary reforms to ensure that national systems, institutions and procedures were effective, transparent and accountable. The Accra Agenda for Action restated these commitments in 2008. In 2010, the Tunis Consensus: Targeting Effective Development, called for a shift from aid effectiveness to development effectiveness, stating “[a]id is only one part of the solution to Africa’s development challenges. Development in Africa must be driven by robust, private sector-led growth and effective and accountable states able to finance their development needs from their own revenues”.

It was hoped that with the Busan Global Partnership for Effective Development Cooperation (2011), donors and partner countries would begin implementing the agreed default approach of using country systems, institutions and procedures to publish and report on all official development assistance (ODA). CABRI studies, as well as some others, however, show that this has not been the case.

Most countries have experienced an increase in both the use of public finance management (PFM) and procurement systems between 2005 and 2010. The least used systems, however, remain budget and planning, even though some donors show a willingness to use audit systems as initial entry point. What is concerning, is that evidence from the Global Partnership Monitoring Report (2014) shows that this commitment is in decline in Africa, particularly in countries that are more reliant on aid. This is the case of Senegal, where the Effective Institutions Platform has approached the Government of Senegal and will be undertaking a pilot study led by CABRI and the USAID to (i) identify why there has been a decline in the UCS at the same time as an improvement in PFM systems, and (ii) to strengthen dialogue between the government and technical financial partners.

So what should our goals be in terms of UCS and the post-2015 development agenda?

1. Increased UCS – regardless of modality: this deals with the misnomer that increases in budget support automatically lead to increased UCS. CABRI would like to see general budget support, as well as other forms of ODA incorporated into national systems, institutions and procedures. In other words, CABRI wants a reduction in the use of parallel systems, and the amount of derogations from country systems.

2. Need to shift the focus from quantity to quality. Donor countries, organisations and partner countries are all facing some variety of challenges following the 2008 Financial Crisis. And while it is debatable as to whether the same levels of donor assistance still exist, the fact remains that donor dependant countries should be graduating towards becoming sustainable and resilient economies. There is therefore a need to re-evaluate the incentives of all donors, partners and governments and to work towards greater value for money in country and donor spending.

3. ODA channelled towards decreasing the dependency on aid. Ultimately, as expressed in the Tunis Consensus, ODA should be used for broader development effectiveness. Part of this involves supporting countries in improving domestic resource mobilisation – either through the tax system or by developing local financial markets. As part of this process, ODA should be used to strengthen country systems, institutions, capacity and governance capabilities, in order to support countries to be more self-sufficient and resilient.

So, as we look towards the Third International Conference on Financing for Development, taking place in Addis Ababa between 13 and 16 July 2015, we need to really consider how best to sustain financing for development, as well as provide support to the sustainable development goals (SDG). The SDGs, unlike the MDGs, are universal, and apply to both developed and developing countries. In addition the world has changed significantly since the first conference in Monterrey in 2002. Inequality levels have risen, and growth is expected to remain below pre-crisis levels for several years. This makes the burden of financing for development effectiveness and inclusive growth even greater. The burden on domestic resources to finance the outstanding commitments on the MDGs and the SDGs, will be demanding. And for low-income countries, this is why it is paramount that ODA is geared towards productive sectors. Understandably, there will still be a need for ODA to flow to traditional sectors like health, but as countries move from low-income to middle-income status, ODA should begin to decline in traditional sectors and focus more on improving country capacity to mobilise and sustain its own domestic revenues and finances. It is, therefore, reassuring that the Zero Draft of the Outcome Document of the Third Financing for Development commits “to support countries that need assistance, including through substantially increasing ODA and technical assistance for tax and fiscal management capacity, particularly to LDCs”.

The goal of decreasing the dependency of countries on aid is win-win. Countries improve their capacity and strengthen their institutions to mobilise domestic resources, manage economic shocks and be more resilient to fluctuations in global markets; and donors have more resources available to focus on domestic programmes like social security reform. As we move closer to Addis, CABRI will be looking for partners to work on fleshing out these ideas and ensuring the shared commitment and policy coherence, particularly around the UCS, that the Zero Draft of the Outcome Document of the Third Financing for Development Conference commits partners and stakeholders to.

CABRI welcomes comments and feedback – please contact Joan Stott, Senior PFM Specialist at the CABRI Secretariat for more information.

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